Home prices fall in January

January data released today by Standard & Poor’s for its S&P/Case-Shiller® Home Price Indices, the leading measure of U.S. home prices in the United States, shows home price composites pummeting into negative terrain.

The price of homes in 20 U.S. metropolitan areas fell in January for the first time in at least six years, a private survey showed today.

Home values dropped 0.2 percent last month from January 2006, according to the S&P/Case-Shiller home-price index. The decrease was the first since the group started keeping year- over-year records in January 2001.

The numbers follow a report yesterday that showed new-home sales at the lowest level in almost seven years as builders struggled with a glut of unsold dwellings. Falling prices make it harder for owners to borrow against home equity and may make lenders even more wary as delinquencies climb.

Today’s data “are a good indicator of the dire state of the U.S. residential real estate market,” said Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University.

44 Responses to Home prices fall in January

Prices of single-family homes across the nation depreciated in January compared to a year ago, the worst results in more than 13 years, a housing index released Tuesday by Standard & Poor’s showed.

The data underscored disappointing sales data released by the government on Monday.

The S&P/Case-Shiller composite index showed a drop of 0.7 percent from a year ago in the price of a single-family home based on existing homes tracked over time in 10 metropolitan markets. Growth hasn’t been that slow since January 1994 when it dropped by 0.9 percent compared to January 1993, S&P said.

For its 20-city composite index, prices fell 0.2 percent. That data has been collected since 2001.

The Federal Reserve is concerned that borrowers of subprime mortgage loans may face “more difficulty” in the next one to two years, a Fed official said Tuesday. In particular, those borrowers with recently originated adjustable-rate mortgages are likely to experience more delinquencies and foreclosures, said Sandra Braunstein, the director of the Fed’s division of consumer and community affairs. In prepared testimony for a House Financial Services subcommittee, Braunstein also said incentives for responsible subprime lenders need to be preserved so that access to credit can be maintained.

If you look at the xls file you can see that NY prices posted YOY declines for 32 straight months starting in Feb ’89. It started as a 1% decline and grew to as much as 8% YOY declines in April ’91.

According to the file, we are in the 2nd month of declines at 1-2%. This is after a much larger runup.

If the late 80’s RE bust is a guide, this decline is either going to be significantly longer than 32 months or we’ll see significantly greater than 8% YOY declines. My guess is it will be 5-6 years before we see appreciation and that we’ll reach a point of 10% YOY declines at some point late in the bust– 2011 or so.

Yesterday morning, Bayonne cops nabbed a fare-beater who compounded his problem by refusing to give his identity to the police.

Christopher Stewart, 20, of Gautier Avenue in Jersey City, gave cops the false name “Paul Williams” and told them he did not have any identification, police said. But cops noticed the man was wearing earrings that spelled out “Chris” and cops eventually discovered a pay stub in his possession that revealed his true identity, police said.

Behind Aaron Winternitz’s home in this heavily Hasidic town about an hour’s drive north of Manhattan sits a white school bus with a metal smokestack. Inside the gutted bus, Rabbi Winternitz pedals a stationary-bike contraption that he outfitted to grind wheat.

At peak operation, Rabbi Winternitz and up to 20 helpers can churn out more than a dozen pieces of matzo in five minutes. In this week before Passover, they will make 100 pounds a day for three days.

“Think about it: they’re built very strong, and they’re made to be fireproof,” Rabbi Winternitz, a schoolteacher, rabbi and amateur inventor, said in explaining how he always thought an empty school bus would be great for matzo-making. “To me, it makes a perfect oven.”

He has been making matzo in his backyard for the past three years, not just for himself but also for many members of Congregation Mivtzar Hatorah. But last week a neighbor called the police complaining of heavy smoke emanating from Rabbi Winternitz’s backyard.

Some collateralized debt obligations may face “severe” ratings cuts because they hold subprime mortgage bonds, according to Moody’s Investors Service.

Subprime mortgage securities made up about 45 percent of the holdings of structured-finance CDOs, or those owning asset-backed debt, issued last year, Moody’s said today. About $179 billion of structured-finance CDOs were created in 2006, according to data compiled by JPMorgan Chase & Co.

The Fed did it? I didn’t know the Fed sat down at every closing to sign the mortgage documents. Oh wait, they didn’t; it was the purchasers who agreed to the terms and decided to ignore the consequences.

“Regulators tell us that they first noticed credit standards deteriorating late in 2003. By then, Fitch Ratings had already placed one major subprime lender on “credit watch,” citing concerns over their subprime business.

In fact, data collected by the Federal Reserve Board clearly indicated that lenders had started to ease their lending standards by early 2004.

Despite those warning signals, in February of 2004 the leadership of the Federal Reserve Board seemed to encourage the development and use of adjustable rate mortgages that, today, are defaulting and going into foreclosure at record rates. The then-Chairman of the Fed said, in a speech to the National Credit Union Administration, said:

Shortly thereafter, the Fed went on a series of 17 interest rate hikes in a row, taking the fed funds rate from 1% to 5.25%.

So, in sum: By the Spring of 2004, the regulators had started to document the fact that lending standards were easing. At the same time, the Fed was encouraging lenders to develop and market alternative adjustable rate products, just as it was embarking on a long series of hikes in short term rates. In my view, these actions set the conditions for the perfect storm that is sweeping over millions of American homeowners today. “

The Fed did it? I didn’t know the Fed sat down at every closing to sign the mortgage documents. Oh wait, they didn’t; it was the purchasers who agreed to the terms and decided to ignore the consequences.

“Regulators tell us that they first noticed credit standards deteriorating late in 2003. By then, Fitch Ratings had already placed one major subprime lender on “credit watch,” citing concerns over their subprime business.

In fact, data collected by the Federal Reserve Board clearly indicated that lenders had started to ease their lending standards by early 2004.

Despite those warning signals, in February of 2004 the leadership of the Federal Reserve Board seemed to encourage the development and use of adjustable rate mortgages that, today, are defaulting and going into foreclosure at record rates. The then-Chairman of the Fed said, in a speech to the National Credit Union Administration, said:

Shortly thereafter, the Fed went on a series of 17 interest rate hikes in a row, taking the fed funds rate from 1% to 5.25%.

So, in sum: By the Spring of 2004, the regulators had started to document the fact that lending standards were easing. At the same time, the Fed was encouraging lenders to develop and market alternative adjustable rate products, just as it was embarking on a long series of hikes in short term rates. In my view, these actions set the conditions for the perfect storm that is sweeping over millions of American homeowners today. “

On the demand side, the investor/purchaser part of demand has all but evaoprated. Primary purchasers on are on the side lines or demanding better pricing before purchasing. Because of the rapid deterioration of subprime lending market, an additional component of demand has now been sidelined because of the inability of a customer to qualify for a mortgage or because the purchaser of a customer’s home needed for closing cannot qualify.

From yesterday’s thread:
ChiFi said:
att-sbc: To start….I have a document that used to be available on the net, but it was pulled. It functions as a marketing piece for Rydex Investments. It has two killer charts, one relates to Sectors and the Economic Cycle, and the other breaks down Sectors and Industry groups. The working assumption is that you are looking to “learn stuff”. Good place to start learning about equity investing from a “macro-economic” viewpoint. Since you do not have fundamental financial analysis skills, your approach to education is going to have to be “top-down” by necessity. Contains the concept of correlation, but you should be able to hit that Uncle Charlie pretty easily.

First lesson – separate “the company” from the financial instruments that derive their value from the company. It is the best way to understand why a good “story” or a well managed comapny can be a bad stock.

Fixed Income is much more difficult, and should wait until you digest this stuff.

Chicago.

Can you please recommend a good book or another resource where I can read and learn about this.
Thanks for your inputs. Really appreciate it.

This comment is for Richard and from another thread but I have been out of town and unable to keep up with my usual blog fix the past few days. Re: the “not in my town” issue: I have also been watching the RE market in Westfield for a while and I agree with him that prices have not declined much in the 600-900 range and buyers are still snapping up anything that stands in that category. However, if he watched the 900 and up range (namely above 1M) he would see major declines, even in this “blue ribbon” town. New construction has fallen the most, with prices being cut every couple of weeks on many properties. Next are the large but unrenovated homes, and then the large and renovated homes “with some issues” (like strange layouts or odd locations). They have all come down in price, even during the spring selling season. Many of the million-dollar homes we have seen that are sitting have sellers who already bought “up” and can’t hold 2 mortgages forever (oops).

“The FBI and the U.S. attorney’s office in Charlotte, N.C., along with the Internal Revenue Service and the U.S. Department of Housing and Urban Development, launched an investigation of Beazer Homes last week, FBI agent Ken Lucas said Tuesday.”

ATLANTA (AP) — Shares of Beazer Homes USA Inc. fell more than 17 percent in after-hours trading after the FBI said it is among agencies investigating possible fraud in the company’s mortgage lending practices and other financial transactions.

The Atlanta-based company, which has suffered hefty losses amid a downturn in the housing market, is the subject of an investigation by the FBI and the U.S. attorney’s office in Charlotte, N.C., along with the Internal Revenue Service and the U.S. Department of Housing and Urban Development, FBI agent Ken Lucas said Tuesday.

Beazer shares dropped $5.38 to $26.03 in electronic trading after closing down 91 cents, or 2.8 percent, at $31.41 on the New York Stock Exchange.